Google's New Operating Structure:
On August 10, 2015, Google Inc. (“Google”) announced plans to create a new public holding company,
Alphabet Inc. (“Alphabet”), and a new operating structure to increase management scale and focus on its consolidated businesses. Under the new operating structure, its
main Google business will include search, ads, maps, apps, YouTube and Android and the related technical infrastructure (the “Google business”). Businesses such as
Calico, Nest, and Fiber, as well as its investing arms, such as
Google Ventures and
Google Capital, and
incubator projects, such as
Google X, will be
managed separately from the Google business.
In connection with the new operating structure and upon completion of the Alphabet Merger (as defined below),
Larry Page will become the Chief Executive Officer (CEO) of Alphabet, Sergey Brin will become the President of Alphabet, Eric E. Schmidt will become the Executive Chairman of Alphabet, Ruth Porat will become the Senior Vice President and Chief Financial Officer (CFO) of Alphabet and David C. Drummond will become the Senior Vice President, Corporate Development, Chief Legal Officer and Secretary of Alphabet. Larry, Sergey, Eric and David will transition to these roles from their respective roles at Google, whereas Ruth will also retain her role as the CFO of Google.
Concurrently upon completion of the Alphabet Merger,
Sundar Pichai, age 43, will become the new CEO of Google Inc. Sundar is currently the Senior Vice President of Products at Google and oversees product management, engineering, and research efforts for Google’s products and platforms. Since joining Google in 2004, Sundar has led a number of key consumer products which are now used by hundreds of millions of people and, prior to his current role, served as Google’s SVP of Android, Chrome and Apps. Sundar received a B.Tech. (Hons.) from the Indian Institute of Technology Kharagpur, a M.S. from Stanford University, and an MBA from The Wharton School of the University of Pennsylvania.
Holding Company Reorganization
Later this year, Google intends to implement a holding company reorganization (the “Alphabet Merger”), which will result in Alphabet owning all of the capital stock of Google. Alphabet will initially be a direct, wholly owned subsidiary of Google. Pursuant to the Alphabet Merger, a newly formed entity (“Merger Sub”), a direct, wholly owned subsidiary of Alphabet and an indirect, wholly owned subsidiary of Google, will merge with and into Google, with Google surviving as a direct, wholly owned subsidiary of Alphabet. Each share of each class of Google stock issued and outstanding immediately prior to the Alphabet Merger will automatically convert into an equivalent corresponding share of Alphabet stock, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions as the corresponding share of Google stock being converted. Accordingly, upon consummation of the Alphabet Merger, Google’s current stockholders will become stockholders of Alphabet. The stockholders of Google will not recognize gain or loss for U.S. federal income tax purposes upon the conversion of their shares in the Alphabet Merger.
The Alphabet Merger will be conducted pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, which provides for the formation of a holding company without a vote of the stockholders of the constituent corporations. Effective upon the consummation of the Alphabet Merger, Alphabet will adopt an amended and restated certificate of incorporation and amended and restated bylaws that are identical to those of Google immediately prior to the consummation of the Alphabet Merger, except for the change of the name of the corporation as permitted by Section 251(g). Furthermore, the conversion will occur automatically without an exchange of stock certificates. Stock certificates previously representing shares of a class of Google stock will represent the same number of shares of the corresponding class of Alphabet stock after the Alphabet Merger. Following the consummation of the Alphabet Merger, shares of Class C Capital Stock and Class A
Common Stock will continue to trade on the NASDAQ Global Select Market
under the symbol “
GOOG” and “
GOOGL” respectively. With respect to Alphabet stock, Larry, Sergey, Eric and their respective specified affiliated entities, as well as Alphabet, will be bound, without any modification, by the same restrictions, undertakings and obligations that are imposed under the Transfer Restriction Agreements, related Joinders and other documentation entered into in connection with the prior settlement of the litigation relating to
Class C Capital Stock. Upon consummation of the Alphabet Merger, the directors of Alphabet will be the same individuals who are the directors of Google immediately prior to the Alphabet Merger.
Financial Reporting
The new legal and operating structure will be introduced in phases over the coming months and when finalized, Google anticipates that it will result in
two reportable segments for
financial reporting purposes, with the
Google business presented separately from
other Alphabet businesses taken as a whole. Accordingly, Alphabet will report its results under this new structure commencing with its Q4 earnings release and its Annual Report on Form 10-K for the period ending December 31, 2015.
Other Changes
Concurrently upon completion of the Alphabet Merger, Omid Kordestani will transition from his role as Google’s Chief Business Officer to become an Advisor to Alphabet and Google. --end of Form 8-K excerpt--
More info at Larry Page's blog post:
Google Announces Plans for New Operating Structure – Investor Relations – Google
Why is Google doing this? Larry and Sergey want to do different new things and leave Sundar Pichai CEO of Google, in charge of the main business. Think of Google as becoming a 21st Century Berkshire Hathaway--Warren Buffett's holding company, whose name belonged to a textile mill he took over (Buffett called it his "worst trade" or investment) and later sold off, retaining the name. If you go to
berkshirehathaway.com today, you'll find a very simple website with some links--the main businesses have their own websites--e.g.,
Geico.com. Expect no more from
abc.xyz.
I also suspect that Google is going to start other new businesses--online banking, for example--that will need to be run separately from Google.com.
Google's stock was up in after hours trading to $705.00 on the news:
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| GOOGL stock chart: 10 Aug 2015 (source: google.com) |
See also: Domain Mondo: Google Q2 2015 Earnings Conference Call, Webcast, July 16th, Replay
